How Does E*TRADE Financial Corporation’s (NASDAQ:ETFC) Earnings Growth Stack Up Against Industry Performance?

Assessing E*TRADE Financial Corporation’s (NASDAQ:ETFC) performance as a company requires looking at more than just a years’ earnings data. Below, I will run you through a simple sense check to build perspective on how E*TRADE Financial is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its capital markets industry peers. View out our latest analysis for E*TRADE Financial

Commentary On ETFC’s Past Performance

ETFC’s trailing twelve-month earnings (from 31 March 2018) of US$692.00m has jumped 30.32% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 32.48%, indicating the rate at which ETFC is growing has slowed down. Why could this be happening? Well, let’s look at what’s going on with margins and whether the entire industry is feeling the heat.

Over the last few years, revenue growth has been lagging behind which suggests that E*TRADE Financial’s bottom line has been propelled by unsustainable cost-reductions. Viewing growth from a sector-level, the US capital markets industry has been growing its average earnings by double-digit 14.43% over the previous year, and 12.90% over the past half a decade. This shows that whatever uplift the industry is benefiting from, E*TRADE Financial is able to leverage this to its advantage.

NasdaqGS:ETFC Income Statement June 13th 18
NasdaqGS:ETFC Income Statement June 13th 18
In terms of returns from investment, E*TRADE Financial has not invested its equity funds well, leading to a 10.39% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 1.08% is below the US Capital Markets industry of 4.64%, indicating E*TRADE Financial’s are utilized less efficiently. However, its return on capital (ROC), which also accounts for E*TRADE Financial’s debt level, has increased over the past 3 years from 1.53% to 2.40%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 173.23% to 68.83% over the past 5 years.

What does this mean?

Though E*TRADE Financial’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research E*TRADE Financial to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ETFC’s future growth? Take a look at our free research report of analyst consensus for ETFC’s outlook.
  2. Financial Health: Is ETFC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.